Big Red Horseshoe - Vanderbilt Owen MBA Students on Everything Business

The Strategy of Managing Creativity and Innovation

I started a new class today.  Its called the "Managing Creativity and Innovation" with Prof David Owens.  This is the class I have been waiting for a couple of mods now because I love expressing my ideas to my classmates much to their chgrin.  I was worried that I would not be able to take this course because Prof Owens left to become the CEO of Griffin Technology, however he was able to free up some of his busy schedule to teach this course.  Check out his blog. http://exovate.blogspot.com/

First assignment:  BusinessWeek.com and carefully examine the list of "25 Innovators, 6 Industries." Once you have a good sense of the list, please identify one (1) company in an industry in which you are familiar or interested that SHOULD NOT be ranked (or ranked as highly) on the list. Next, identify one (1) company in that industry that SHOULD be ranked (or ranked more highly) on the list. Please post a reply (by clicking "COMMENTS" below) with your insights along with a very brief explanation of your position. LINK

After spending last week taking a Healthcare Policy course, I had to take a crack at the insurance companies. 

In my humble opinion, I feel that United Healthcare should not be on the list of innovative companies April 16, 2006 issue of Business Week.  There are a list of reasons why but I will focus on the ethical aspect of employee incentives better known as backdating.  Here is an article quoted from the Wallstreet Journal "The Securities and Exchange Commission (SEC) placed a call to the headquarters of UnitedHealth in Minnesota and it possible that the call was a part of broad based investigation that the SEC is conducting into the practices of awarding employee stock options at a number of companies."  This company was investigated for backdating their stock options and their CEO, Dr. McGuire was “Awarded options on dates with very favorable strike prices and the chances of these dates being picked out randomly is about one in 200 million.”

Is this an innovative company through incentives process?  Possibly.  Are they unethical?  Yes!  UNH is notorious for terrible customer service and is the worst enemy of the hospital because of their aggressive tactics.  Insurance companies have driven up the cost of care drastically in the last 10 years.  Has anyone seen Sicko? There needs to be an ethical assessment to the innovative ideas/processes.  Does it better the customer? 

I would add Revolution Health to the list of Innovative companies because of the ground breaking work by former AOL CEO, Steve Case.  With the trend of consumer driven healthcare, Revolution Health was started 2005 with the hopes of becoming a disruptive technology by addressing the issue of information asymmetry in healthcare.  Revolution provides the tools, information and support to Americans to manage their health and wellness activity.  They use open source web application framework for their design work which encourages collaboration—always a good thing.  Their recent merger with Waterfront Media, an operator of health websites would combine their collective efforts of 14.7 million visitors and 11.3 million visitors each month to take on the likes of WebMD, the largest operator of health websites at 17.3 million.  Use of innovation that empowers the user and promotes ethical practices is my definition of bettering the customer.  Innovate but remember that we should strive to give the customer what they need not what we think they need.

From Zero to Entrepreneur

Why go to school for Entrepreneurship?

Many people wonder why an entrepreneur needs to be in business school. Maybe they think entrepreneurship can’t be taught and can only be learnt from the School of Hard Knocks or some even think if you are not a born entrepreneur you are not going to become one by going to school. I think that’s probably what people said of those who went to business school half a century back to learn management. You are either born with it or you are never going to have it. I don’t think you can argue about business schools making better managers. If you do, just don’t tell it to the corporations spending hundreds of thousands of dollars recruiting candidates from business schools. And so it is with entrepreneurship in my opinion. We just don’t know enough of this field right now. There is however a School of Hard Knocks built into the entrepreneurship rigor of every good business school. There are entrepreneurship electives that will need you to get dirty out in the field and then there are other things like business plan competitions. Business schools also offer resources for entrepreneurs that can’t be overlooked especially the network you can build. If you have a good idea and a good plan you can find funding. If you don’t have a good idea or a good plan you can get plenty of ideas in this stimulating environment and plenty of help refining your ideas. One advantage of business school that can’t be quantified is the inspiration you get here. One of the first things that started to dawn on me, as early as during orientation, was that if you have a dream you can achieve it here.  That’s powerful and many people will tell you that’s all an entrepreneur needs. And if it’s something you plan to do for the rest of your life you can’t go wrong spending two years preparing for it.

My Plan

I have no entrepreneurship experience except for selling a few items on eBay and investing in a food cart business as a partner back in India only to see my partner disappear with my money. My plan for now is to export handicrafts from India to the United States and Europe. I have worked in India’s garment exports industry for three years and I have seen how competitive it is. If we only look at the South-East Asian region the competition is daunting. Pakistan is able to produce better cotton than us and therefore produce better garments. China is too cheap to compete with. Bangladesh is also very good. They also have cheap labor but they seem to be investing more in plant modernization. There are many other countries which are also very competitive in garment exports. I believe this is true for most other industries. This is what drew me to handicrafts. Handicrafts embody the cultural and artistic persona of the part of the world they come from. Indian handicrafts are different than Pakistani, Chinese, Bangladeshi, and all other handicrafts. This offers me, the aspiring entrepreneur, more scope for product differentiation. Throw in a few ideas of your own and you can have a product that will be unique. Once I have this set up I will want to source handicrafts from other countries such as China, Japan, Jamaica and wherever I can and export them to all over the world and have a global network of handicrafts exports and imports.

Entrepreneurial Genesis?

Although things have been very busy since school started I knew I could do one of two things – focus hard on a few courses and get the grades that look good or take advantage of all the wonderful things that I can at school but compromise on the quality of time I spend studying. What do you think an entrepreneur would do? There have been some exciting developments that I am a part of – more of that in my next blog. Through my blog I hope to take you with me on my transformation to an entrepreneur and I hope to shed some light on this not-yet-well-understood subject.

The Dichotomy of Innovation …

“… outstanding companies can do everything right and still lose their market leadership -- or worse, disappear completely…..”

http://innovationzen.com/blog/2006/10/04/disruptive-innovation/

Prof. Clayton Christensen's work from Harvard Business School lays its foundation in the dichotomy of Sustained and Disruptive Innovation.

An innovation strategy can be sustained only if it improves the performance of existing products along the dimensions that mainstream customer’s value.

Most companies, however, follow the disruptive innovation model whereby they stay on the innovation trajectory and keep investing in R&D until they fall off the efficiency value curve and start producing new products in a quality dimension and speed that the market cannot absorb. This is where the incumbents gain a foothold by providing products cheaper and better which the marginal segment values more creating a bigger market and eventually replacing the mainstream. A major example is IBM which started in mainframe hard drive space and kept innovating in the same segment while the OEMs gained foothold in smaller storage drives for desktops and eventually drove IBM out by creating a new market underneath.

Michael Raynor from Deloitte has carried Christensen’s work a step further and suggested the Innovators Solutions in his book (http://www.theinnovatorssolution.com/)where the case of Intel innovating beyond the market absorption capacity of the market. The chips from Intel today are good enough for our computer needs for the next two decades. The incumbent being AMD provides cheaper and faster chips which suit present needs. The innovative solution from Intel comes in the form of Celeron chips which preempt AMD and still keep innovations flowing.

Who own's Organic Food Companies?

Did you know that many of your favorite organic foods are owned by some of the world's largest food producers? Kashi is owned by Kellogg, Seeds of Change by M&M Mars, Health Valley, Arrowhead Mills, Earth's Best and 16 other brands are owned by Hain Celestial who have a strategic alliance with Heinz.

An assistant professor of Community, Agriculture and Recreation and Resource Studies at Michigan State University, Phil Howard, has been creating visual charts tracking buyouts in organic food industry since 2002 when USDA implemented the Organic Standards.  Comparing his 2002 chart to the most recent update in January 2008 (both showing  food processors and organic brand acquisitions, organic brand introductions and strategic alliances) the consolidation of the industry is scary.

At Owen we tend to think of consolidation a little bit differently based off a seminar series that I attended this week.  The Vanderbilt Entrepreneurship Association (VEA), which I am currently a member, held a lecture with successful entrepreneur, Dr. Michael Burcham.  In his first lecture titled "Building a Venture-Backed Business," "The Plan," the class was tipped off to idea that consolidation in the market is good thing.  Consolidation means there is opportunity for smaller more agile companies to respond to the massive mergers/acquisitions that tend to tie up the large holding companies working to realize "synergies."  Consolidation happens for a variety of reasons.  The current credit crisis has led to massive consolidation.  In the realm of Organic foods, I feel like there has been some consolidation but nearly as much as we might expect to see.  I believe this trend will change in the next 5-10 years because of recent and future legislation and the seeds of change already created in todays market through aspiring entrepreneurs.

Dr. Burcham also touched another key piece of information. As an entrepreneur we are taught to look to the aggregators or the biggest companies in each market to determine how you can create a business that is easily acquirable.  Basically, begin with the end in mind.  I think in the Organic foods market consolidation is not scary as one author noted, but rather it is a good thing because it leads to better oversight and gains more attention from investors both private and public.  This infusion of captial will infact inspire young entrepreneurs to create new products/processes because they know there might be a payoff at the end.  This enviornment frees up capital for visionaries to create new products or concepts like organic fast food joints.  What?  Is that possible?  Organic Fast food? 

I found this article ties into the discussion from a different angle that maybe we are not seeing. 

Part Time Vegetarians
Advocates call it flexitarianism, but critics say being a little bit vegetarian is like being a little bit pregnant.  So I was reading a recent Newsweek article as I tried to see if the trend of increased American consumption of vegetables/fruits and consolidation of organic foods show that there is opportunity for growth of this market. http://www.newsweek.com/id/161559?from=rss

I found this discussion in the recent Summer Slow food Article from the editor, Erika Lesser http://www.slowfoodusa.org/downloads/publications/snail-2008-summer.pdf?phpMyAdmin=12c48b5a649t3e319a92

"Conservation and Energy Act of 2008 (the latest Farm Bill) was finally made into law in late May. It seemed that most pundits, activists and eaters nationwide were either disappointed with or just plain unaware of the latest batch of laws to be applied to our nation’s food system. Yes, there were a few reforms worth celebrating, primarily provisions on conservation, nutrition and food security. But by and large, there seemed to be less to celebrate than to lament, especially when it came to the continuance of commodity subsidies. There was however one modest provision that caught my eye. For the first time, any school using federal school lunch program funds (which means every public school in this country) is allowed to specify “local” as a bid requirement in purchasing foods for school meals. Until now, the USDA has prohibited schools from using geographic preference in choosing their ingredients. This may seem like a minor point, but it made me wonder: has our government, through this tiny precedent, decided that it’s not only acceptable but perhaps even beneficial to determine one’s purchasing—and eating—choices according to at least one factor besides price, namely PLACE?"

Is the nation ready for change? Are we starting to see the change from meat and potatoes from all over the country to veggies grown and served locally.  Is consolidation in this market a good thing?  Can it provide a regional appeal? Are we ready for a paradigm shift away from fast food nation.  Big business could be the catalyst we need.  How can we make it affordable for those at and below the poverty line? 

With those questions in mind a provide a successful Business Case, Stoneyfield Farm.

Gary Hirshberg is president and chief executive officer of Stoneyfield Farm, the world's largest producer of organic yogurt.  Gary commented on the power of working with big business to acheive one's goals (i.e. selling 40% of his business to Dannon worth 100 million dollars.”  I encourage everyone to read his story in this month's "FastCompany" article. In his words. 

"My role as father and perhaps one day grandfather, and as a man who loves this planet, requires nothing less than shelving my own rebellious instincts in favor of this run at the biggest prize of all—market dominance," he told Pamela Accetta Smith, a writer for Dairy Field.

"Commerce is the most powerful human force on earth, and only by marshalling this force can we hope to begin to restore our planet to a place that will support and nurture life."

Gary is one example of an entrepreneur who found the niche in the market and worked with corporate to acheive his goals.  With this captial, he did not stop with Stoneyfield Farm but went on to develop his his newest creation, O’Naturals http://www.onaturals.com/onat.html an organic option to fast food started around 2001.  Thank you Gary.  Why are there only six locations in the country?  It’s time for a change for change in this country and let's use the tools we have to make it happen.    

I leave you with this final quote.  "Business is the most powerful force in the world," he told David Goodman, a writer for Mother Jones. "I believe that virtually every problem in the world exists because business hasn't made finding a solution a priority."